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Employers and Settlement Agreements

We are a specialist firm of employment law solicitors based in Central London (Holborn WC1, just by Chancery Lane tube) As employment law solicitors we have given advice to many organisations help them resolve difficult problems using Settlement Agreements (also known as ‘redundancy agreements’ and ‘severance agreements’). Call us today on 0207 118 0950 for a meeting.


Why offer a Settlement agreement?

Without a compromise agreement, you cannot settle statutory claims arising from employment or its termination. Offers ‘in full and final settlement’ will not be sufficient. If you are offering any kind of enhanced terms, or wish to settle a claim, it’s really important to get a compromise agreement.

Get advice first!

It’s vital to get specific legal advice on the situation you find yourself in before you start to make ‘without prejudice’ offers or start referring to compromise agreements or severance packages with employees.

For example in one reported case a female executive raised a grievance saying that she has been discouraged from returning after maternity leave and had been prevented from returning to her old job. In a ‘without prejudice’ meeting she was told if she did not accept their offer of £100,000 severance, she would be sacked. She raised this in evidence which the employer objected to. However the Employment Appeals Tribunal held that ‘without prejudice’ communications were admissible in evidence in these circumstances. Raising a grievance was not of itself a ‘dispute’ to which ‘without prejudice’ communications would apply. In other words the employer made things a lot worse for themselves than they need have.

In another case, the compromise agreement was not binding because the employer forgot to list whistle-blowing claims in the list of the claims settled. A general catch all provision was not effective. In other words pro forma agreements can quickly go out of date and have to be reviewed regularly.

On redundancy:

Many employers will give ex gratia payments on redundancy, in which case you should make it subject to a compromise agreement. Regardless of how fair you think you’ve been in the redundancy process, the employee could otherwise take the money and then sue you.

To resolve an intractable problem with an (ex) employee:

If it’s done in the right way, it can be possible to cut through complicated or intractable problems with employees and offer them a severance agreement. This will sometimes be the case when (say) someone has a history of poor attendance or has a personality clash with their manager.

On the other hand, it won’t always be appropriate to offer an employee a severance (for example when serious misconduct is involved) for fear of attracting copycat claimants or setting a precedent for the future.

What goes into the settlement agreement:

There are a number of factors which need to be carefully considered when preparing a compromise agreement including:

  1. Identifying carefully the potential claims the employee might bring against you (compromise agreements will not be binding if relevant claims are not identified and listed).
  2. Whether some or all of the payment can be paid free of tax (see our page on the taxable position).
  3. Whether to give a payment in lieu of notice, garden leave, or let them work their notice.
  4. Whether to make the offer subject to the employee entering into certain post termination restrictions limiting what the commercial damage they can inflict upon you after they leave.
  5. What happens to share options on leaving.
  6. What happens to other benefits such as cars, health insurance, pensions if a payment in lieu is made.
  7. Whether the employee holds sensitive information which you want returned (ie data on home computers or laptops).

Furthermore, the legal requirements of a compromise agreement are:

  1. The compromise agreement must be in writing
  2. It must relate to a particular complaint (or complaints). If you are using a pro forma it can be easy to leave out a new statutory claim which will therefore not be covered.
  3. The employee must have received advice from a relevant independent adviser (normally a solicitor) as to the terms and effect of the proposed agreement and in particular its effect on his ability to pursue his rights before an employment tribunal.
  4. There must be in force, when the employer gives the advice, a contract of insurance or an indemnity covering the risk of a claim by the employee in respect of loss arising from the advice.
  5. The agreement must identify the adviser
  6. The agreement must state the conditions regulating compromise agreements under the relevant Act are satisfied.

There will also be a number of other belt and braces clauses that we’ll go through with you to make the agreement as effective as possible. Call us now to discuss your needs with a qualified solicitor and employment lawyer.

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